Global Processing

J.M. Smucker buys Folgers for $2.95 billion

June 6, 2008
According to the Associated Press, jams and jellies maker J.M. Smucker is adding coffee to its menu of brands by buying Folgers from consumer products company Procter & Gamble (P&G) in a $2.95 billion, all-stock deal, Smucker''s biggest ever.

The deal will nearly double Smucker''s size. Folgers will become the 10th number one ranked brand in the Smucker stable that includes its namesake jams, Eagle Brand condensed milk, Hungry Jack pancake mix and two earlier acquisitions from P&G, Jif peanut butter and Crisco cooking oil.

The company said it expects annual sales increases of six percent over the long term with acquisitions continuing to play an important role.

Smucker will assume about $350 million of Folgers'' debt and sweetened the offer for its current shareholders with a special pre-acquisition $5 dividend.

Tim Smucker, chairman and co-chief executive, said the special dividend would address any diluted value for Smucker shareholders in the deal and recognize their loyalty.

With the Folgers deal, P&G shareholders will wind up owning 53.5 percent of Smucker and current Smucker shareh olders will own the rest.

Tim Smucker said the merger of Folgers with Smucker''s breakfast and dessert brands opens many opportunities for brand marketing strategies. That could include, for example, adding a Jif discount coupon in a Folgers can.

J.M. Smucker Co., based in Orrville, about 45 miles south of Cleveland, expects the acquisition will boost profits by about nine percent, excluding costs, if it owns the brand for the entire 2009 fiscal year that begins July 1.

With the addition of Folgers, Smucker said it expects sales to increase to nearly double to about $4.7 billion. Discounting costs from the deal, Smucker said it expects to make $3.45 to $3.50 per share in the fiscal year beginning July 1.
The deal with Cincinnati-based P&G, known for such brands as Pampers, Gillette Fusion razors and Head & Shoulders shampoo, is expected to close in the fourth quarter.

Analyst reaction was positive. Stephens Inc. said it viewed the deal positively in view of the Smucker practice of buying up strong brands and revitalizing them.

Susan Fournier with Boston University''s management school said the deal was a heavenly match because there were pluses for P&G and Smucker.

In Cincinnati, where Daniel C. Kiley manages money for more than 500 P&G retirees, most of whom still own company stock, said the deal came at a good time, with the economic downturn prompting some consumers to make coffee at home instead of buying Starbucks lattes out.

Kiley said the majority share of Smucker stock that will be held by P&G shareholders after the deal is finished reflected the scale of the transaction.

P&G last year raised the possibility of divesting slower-growing brands, and in January said it was leaning toward separating Folgers in a deal in which shareholders would have the option of exchanging P&G shares for shares in the new coffee company.

While Folgers has been the nation''s No. 1 ground coffee brand and is among P&G "billion-dollar brands" in annual sales, it has faced increased competition from Starbucks and other coffee-makers.

Smucker shares rose 12 cents to $53.87 Wednesday. The shares have traded between $42.75 and $64.32 the past year.

P&G shares rose $1.04, or 1.6 percent, to $66.45. The shares have traded between $60.76 and $75.18 over the past year.